CAEATFA Sales and Use Tax Exclusion
Revenue and Taxation Code Section 6010.8
California Revenue and Taxation Code (RTC) section 6010.8 provides an exclusion from sales and use tax for the purchase of tangible personal property by a "participating party" for eligible projects involving the following:
- Alternative energy sources
- Advanced transportation technologies
- Advanced manufacturing
- Recycled Feedstock
Persons who wish to obtain this exclusion must apply to the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA).
Senate Bill 71, enacted in 2010, amended the Public Resources Code (PRC) to allow the exclusion from sales and use tax for eligible projects that promote the utilization of "green technology."
Senate Bill 1128, enacted in 2012, amended the PRC to allow the exclusion from sales and use tax for eligible projects that promote the utilization of "alternative manufacturing."
Assembly Bill 199, enacted in 2015, amended the PRC to allow the exclusion from sales and use tax for eligible projects that promote the utilization of "recycled feedstock."
This program is administered by the CAEATFA. Please visit CAEATFA's website for information on:
- Application materials
- Application process
- SB 71, SB 1128 and AB 1128 regulations
- Other program information
For additional information, see:
- SB 71 Frequently Asked Questions (CAEATFA)
- BOE Special Notice – New Legislation to Affect Manufacturers of Green Technology
If CAEATFA has informed you that you qualify as a participating party, and the equipment you purchase is considered a "project," you should issue your vendor an exemption certificate as described in Sales and Use Tax Regulation 1667, Exemption Certificates. The form should include your seller's permit number, or if you are not required to hold one, a notation to that effect and the reason you do not need one. The form should also include a statement that the property will be purchased in a manner excluded from tax per Revenue and Taxation Code (RTC) section 6010.8.
Because this is a new program, you may find it helpful to inform your vendor of this program by attaching a copy of your Master Agreement with CAEATFA and a copy of BOE Special Notice – New Legislation to Affect Manufacturers of Green Technology to your exemption certificate. Providing such additional information will help your vendor understand that they can accept the exemption certificate in good faith.
Can I Purchase Equipment Prior to Being Approved by CAEATFA?
The Sales and Use Tax exclusion applies to any property that is considered a "project." You are allowed to purchase your equipment in anticipation of approval by CAEATFA; however the following conditions apply:
- You will not be granted the exclusion until you are approved by CAEATFA.
- To qualify for the exclusion, it is necessary to be able to establish that there has been no functional use of the property or that the property has not otherwise been placed into service prior to being accepted as a participating party by CAEATFA. Functional use is defined as use for purposes for which the property was designed.
- If you plan to purchase equipment in anticipation of being approved by CAEATFA, and the equipment is not yet considered a "project," you may not issue a valid exemption certificate because your project has not yet been approved by CAEATFA. Under such circumstances, you must pay tax on purchases you make prior to approval by CAEATFA, and you may not functionally use, or place in service, the equipment prior to being accepted as a participating party by CAEATFA.
- If you paid sales tax reimbursement or use tax on property that ultimately qualifies as a "project" and can establish with proper supporting documentation that the property has not been functionally used or placed in service prior to being accepted as a participating party by CAEATFA, you are entitled to a refund of tax once CAEATFA grants approval of your project.
How Do I Receive a Refund for Tax Already Paid?
- If the tax you paid is considered a use tax (typically use tax applies when you purchase from an out-of-state vendor), you may file a claim for refund directly with the Board of Equalization. Simply complete form BOE-101, Claim for Refund and Credit and mail it to the address provided. Include as the reason for the refund that the property was purchased for subsequent nontaxable transfer to CAEATFA under RTC section 6010.8.
- If the tax you paid is considered a sales tax (typically sales tax applies when you purchase from a California vendor), you must obtain a refund of tax directly from your vendor. An amount paid to the retailer by the purchaser itemized as sales tax is not imposed by the state on the purchaser. It is a tax imposed on the retailer. The purchaser, as a matter of contract, is merely reimbursing the retailer for the tax imposed on the retailer. Thus, the purchaser has no standing to file a claim for the refund with the BOE for such amounts since the purchaser made no payments of sales tax to the BOE. Instead, the retailer is the only person who may file a claim for refund of sales taxes. When a retailer receives a refund of excess tax reimbursement paid to the state, the retailer is obligated by law to return the excess tax reimbursement to the purchaser who paid it.
Construction contractors and participating parties must follow specific procedures when providing exemption certificates to suppliers and preparing contractual agreements. The exclusion provided in Revenue and Taxation Code (RTC) section 6010.8 only covers transfers of title of tangible personal property to the participating party. Therefore, only the participating party can issue their vendor an exemption certificate claiming the RTC section 6010.8 exclusion. Under no circumstances should contractors issue an exemption certificate to their vendors claiming the RTC section 6010.8 exclusion for their purchases of materials, fixtures, or machinery and equipment. However, under specific circumstances it may be appropriate for the contractor to issue a resale certificate. If, under specific circumstances, contractors are intending to sell materials, fixtures, or machinery and equipment to the participating party under RTC section 6010.8, they should purchase the property for resale and supply their vendors with a timely valid resale certificate. For general information on applying tax to sales of construction materials, fixtures, machinery and equipment, please see our Tax Guide for Construction Contractors.
Generally, a construction contractor is the consumer of materials and a retailer of fixtures that are furnished and installed in the performance of a construction contract. Due to the different applications of tax, it is very important to determine whether items that are being furnished and installed in the performance of a construction contract are materials or fixtures.
Since the exclusion provided by RTC section 6010.8 only applies to items sold at retail to the participating party, a construction contract for the furnishing and installation of materials must be structured so title of materials transfers directly to the participating party. A construction contractor performing a construction contract may contract to sell materials and also to install the materials sold. To qualify as a retailer of materials the contractor must meet each of the following requirements:
- The construction contractor must be in the business of selling materials or other tangible personal property;
- The construction contractor must possess a valid seller's permit; and
- The construction contract must explicitly provide for the transfer of title to the materials prior to the time the materials are installed, and must separately state the sales price of materials, exclusive of the charges for installation (for example, a time-and-materials contract).
Sales of Materials
Construction contractors must structure their contract in a way that will ensure that the materials are sold to the participating party prior to any taxable use. For a construction contractor to be a retailer of materials, the contractor must separately state the selling price of the materials and the contract must pass title of the materials to the participating party prior to installation.
If a construction contractor is the retailer of materials and holds a valid seller's permit, it may issue a resale certificate to its suppliers for any materials for which the contractor is the retailer. The participating party may provide the construction contractor with a timely exemption certificate pursuant to Regulation 1667. The contract between the construction contractor and the participating party should clearly state that transfer of title to the materials is made prior to the time the materials are installed, and separately state the sale price of the materials, exclusive of the charge for installation.
Sales of Fixtures, Machinery and Equipment
In general, construction contractors are retailers of fixtures, machinery and equipment they furnish and install. Any transfers of title of fixtures or machinery and equipment by the construction contractor to the participating party is a retail sale. If the property transferred is considered a "project," and satisfies the conditions provided by RTC section 6010.8, such sales will be excluded from tax when the participating party issues an exemption certificate directly to the construction contractor. Provided the construction contractor holds a valid seller's permit, they may provide their vendors a resale certificate for its purchases of these items.
Prime Contractors and Subcontractors
A construction project may involve a prime contractor and multiple subcontractors. When a participating party contracts with a prime construction contractor to furnish and install materials and fixtures, and that contractor in turn contracts with a subcontractor to both furnish and install, both contracts are considered construction contracts under sales and use tax law. The prime contractor cannot "pass down" the exclusion under section 6010.8 by providing a sub-contractor with a resale certificate. The general rule is that the last person who has the true responsibility to both furnish and install the property is the construction contractor/retailer. If a subcontractor is responsible for both furnishing and installing property (the subcontractor is a construction contractor and not just a vendor or service provider), in order for the participating party to take advantage of the exclusion provided by section 6010.8 the contract must provide that the subcontractor will pass title directly to the participating party prior to installation or before any taxable use is made. In that case, the participating party may issue an exemption certificate to the subcontractor.
There are situations where a subcontractor may sell property to the prime contractor (retailer) without making an agreement to install the property. In this case, the subcontractor is acting as a supplier and the sale from the subcontractor/supplier to the prime contractor is a sale for resale and the subsequent sale by the prime contractor to the participating party is the retail sale. In other situations, the subcontractor only agrees to install property. In that case, the subcontractor is merely providing a service and neither sales nor use tax is owed. As noted above, in a situation where a subcontractor is furnishing and installing either materials or fixtures, the subcontractor generally may not accept a resale certificate from a prime contractor. The contract with the subcontractor must provide that the sale was made directly to the participating party for the exclusion under RTC section 6010.8 to apply.
Sales of Materials
RTC section 6010.8 states this exclusion only includes transfers of title for property made directly to the participating party. The exclusion cannot be passed down by the prime contractor to the subcontractor by the use of a resale certificate. In order for the participating party to purchase materials without tax from a subcontractor, the subcontractor must structure their construction contracts so that title transfers directly to the participating party prior to installation and before any taxable use is made of those materials, and ensure that the contract separately states both the sales price of the materials and installation charges. Similarly to prime contractors, if the subcontractor is regarded as the retailer of materials (versus the consumer), then they may issue a resale certificate to their vendors before making a sale for resale directly to the participating party.
Sales of Fixtures
Although construction contractors are generally retailers of fixtures they furnish and install, a subcontractor's sales of such property to a prime contractor are not covered under this exclusion. The exclusion is only applicable to transfers made directly to the participating party. Unlike prime contractors who can accept an exemption certificate from the participating party, subcontractors who sell property to the prime contractor cannot accept an exemption certificate from the prime contractor to qualify for the exclusion. In order for fixtures to qualify as an exempt sale under this exclusion, title must be transferred directly to the participating party prior to installation of the fixture. The contract must specifically provide that title will pass directly from the subcontractor to the participating party before any taxable use is made of the fixture.
Sales of Machinery and Equipment
Construction contractors are generally the retailers of machinery and equipment. Therefore, sales of tangible personal property such as machinery and equipment do not occur in the performance of a construction contract. A subcontractor may accept a resale certificate from a prime contractor in good faith that it will be later resold by the prime contractor in a retail transaction directly to the participating party.
A time-and-material contract is one type of contract that provides for a separate statement of the selling price of materials. However, a time-and-material contract is not required. Any other type of contract may be used if the contract contains a separately stated selling price of the materials and the contract explicitly provides for the transfer of title to the materials prior to the time the materials are installed. For example, a guaranteed maximum price contract may qualify provided that the selling price of the materials is separately stated and the contract contains language transferring title of the materials to the participating party prior to installation by the selling contractor. Below is a nonexhaustive example of language that may be included in a guaranteed maximum price contract for the purpose of providing a separately stated selling price of materials. In addition to the language in the following example, the contract must contain a title passage clause for the transfer of title to the materials from the contractor to the participating party prior to installation. For example, the clause may state in part that seller shall transfer title to the goods to the buyer prior to installation performed by the seller.
- Section x. Contract Price. Subject to the terms and conditions hereof, as payment for contractor’s performance of the Services under this Agreement, Participating Party shall pay a guaranteed maximum cost of $ (“Contract Price”). The portion of the Contract Price which is the sales price of materials furnished is $ , which amount is exclusive of any charge for installation and performance of labor services.